A Standard & Poor’s (S&P) report on the US drought has put the cost to crop insurers and reinsurers at $US5 billion ($4.75 billion).

The ratings agency’s paper says the harvest will be the worst since 1988 and insurers will record some of the worst underwriting results in the sector since then.

Net loss ratios, before private reinsurance, are expected to blow out to 120%.

If the S&P cost estimate is correct, the event – largely expected to hit insurers’ third-quarter results – will see the biggest recorded loss so far this year.

However, S&P notes the US Government crop reinsurance scheme, coupled with open-market reinsurance, will make losses for primary insurers “easier to take”. The agency does not expect the losses to lead to ratings downgrades.

“Underwriting losses will be a drag on earnings but, by themselves, will not affect the capital of most insurers that we rate,” S&P analyst Jason Porter said in the report. “We do not expect to take any rating actions solely because of crop insurance losses.”

QBE Group CEO John Neal has called the drought the worst in 50 years.

But he says QBE is still forecasting a combined operating ratio of 99% from its US crop business for the full year.

The states most affected by the drought are Arkansas, Georgia, Illinois, Indiana, Iowa, Kansas, Mississippi, Nebraska, Oklahoma, South Dakota, Tennessee and Wyoming.

Last year, the 12 largest US crop insurers collected almost half of their $US12.4 billion ($11.79 billion) in premiums from these states.